A.M. Best affirms ratings of Arab Orient Insurance Company

15/06/2013 08:42 AST

A.M. Best Europe - Rating Services Limited has affirmed the financial strength rating of B++ (Good) and issuer credit rating of "bbb+" of Arab Orient Insurance Company (GIG | AOIC) (Jordan).

The outlook for both ratings remains stable. The ratings reflect GIG | AOIC's leading position in its local insurance market, its robust profitability and adequate level of risk-adjusted capitalisation.

The company's concentrated business profile and recent growth strategy are considered offsetting rating factors. The ratings also incorporate the implicit support offered from the company's parent, Gulf Insurance Company K.S.C. (GIC).

GIG | AOIC is of strategic importance to GIC, of which it accounted for 21% of gross written premiums and 26% of underwriting profits in 2012.

Along with technical support in areas such as reinsurance purchasing, risk management and reserving, GIG | AOIC also is a part of GIC's campaign to rebrand its subsidiaries under a united Gulf Insurance Group (GIG) brand.

In 2012, GIG | AOIC grew its gross written premiums by 19% to JOD82.6m ($116.7m), which was notably ahead of the overall market growth rate of approximately 6%. GIG | AOIC has further enhanced its position as market leader, as measured by gross written premiums, with a market share of approximately 18%.

GIG | AOIC's portfolio continues to be concentrated towards medical and motor risks, which together accounted for 81% and 93% of the company's gross and net written premiums in 2012, respectively. GIG | AOIC's level of risk-adjusted capitalisation remains at an adequate level, despite some deterioration in 2012, due to material business growth.

Capitalisation is supported by a low level of risk retention, a good reinsurance panel of good credit quality and a conservative investment strategy. On a stressed basis, after the consideration of GIG | AOIC's potential exposure to catastrophic perils, the company's level of capitalisation is at a marginal level, although remains supportive of the rating.

Furthermore, the company's assessment of its catastrophic exposure is unsophisticated, with catastrophe scenarios assessed with support from reinsurers.

Although GIG | AOIC's underwriting profitability deteriorated in 2012 due to a higher frequency of medical losses, its combined ratio remains at a good level of 89%. GIG | AOIC's overall profits have been stable in recent years and benefit from a low risk investment strategy, where investments are largely focused in cash and deposits with local banks. There will be positive pressure on GIG | AOIC 's ratings over the medium term should it continue to defend its strong market position while ensuring a good level of operating performance and risk-adjusted capitalisation.

Deteriorating profitability could add negative pressure to the company's ratings given its high reinsurance dependence. Additionally, A.M. Best is monitoring the growth strategy of GIG | AOIC in line with its capital needs, which is considered to be a source of future negative pressure on the ratings.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure. A.M. Best Europe - Rating Services Limited is a subsidiary of A.M. Best Company. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.

AME Info